Re: The Clearest Explanation of the Cause of Financial Crisi : Thu Nov 15, 2012 12:36 pm  

LeighGionaire wrote: Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee and one of the top candidates to become the next Bank of England governor - http://www.positivemoney.org.uk/2012/11 ... al-crisis/ Still never heard a mainstream politician talk about this as a cause for the financial crisis. Until they acknowledge the root of the problem we can rest assured their attempts to save the economy will only make things worse. Shouldn't that read "A link to an article that backs up what I've been saying for ages regardless of any evidence presented to counter my arguument"

LeighGionaire wrote: Adair Turner, the chairman of the UK’s Financial Services Authority, member of the BoE’s Financial Policy Committee and one of the top candidates to become the next Bank of England governor - http://www.positivemoney.org.uk/2012/11 ... al-crisis/ Still never heard a mainstream politician talk about this as a cause for the financial crisis. Until they acknowledge the root of the problem we can rest assured their attempts to save the economy will only make things worse. Shouldn't that read "A link to an article that backs up what I've been saying for ages regardless of any evidence presented to counter my arguument"

Re: The Clearest Explanation of the Cause of Financial Crisi : Thu Nov 15, 2012 12:54 pm  

Cookridge_Rhino wrote:

So yes banks can create as much money as they like, as long as they don't care about becoming insolvent. Barclays could deposit £100 trillion in my account right now, but as soon as I tried to spend it the bank would be insolvent.

You appear to have answered your own question. Irrespective of the to-ings and go-ings of "money" inside central banks - LeighGionaire is quite correct in saying banks have created off-the-books money knowing perfectly well (because many current and former representatives of the very same banks sit on regulatory boards such as the SEC in America) that insolvency isn't a problem as the Bank of Last Resort (us) will be forced to stump up the cash.

I really don't understand why you and many others are willfully misinterpreting some (not all) of LG's points. I mean, haven't prominent economists such as Richard Werner been saying precisely the same for years?

Is this a figment of my imagination?

Re: The Clearest Explanation of the Cause of Financial Crisi : Thu Nov 15, 2012 7:13 pm  

Mugwump wrote:

You appear to have answered your own question. Irrespective of the to-ings and go-ings of "money" inside central banks - LeighGionaire is quite correct in saying banks have created off-the-books money knowing perfectly well (because many current and former representatives of the very same banks sit on regulatory boards such as the SEC in America) that insolvency isn't a problem as the Bank of Last Resort (us) will be forced to stump up the cash.

I really don't understand why you and many others are willfully misinterpreting some (not all) of LG's points. I mean, haven't prominent economists such as Richard Werner been saying precisely the same for years?

Is this a figment of my imagination?

I'd appreciate it if you could find an example of me misrepresenting him, because I'm fairly sure I've done no such thing.

I understand how banks create money via the fractional reserve system. I understand they saw regulation, designed to curb their money creation, as a hindrance which should be avoided in order to maximise profits. I know they underestimated risk, and I suspect some may have pushed it further than they thought was safe, for selfish reasons. I'm not sure why this is relevant though.

LG claimed banks create money in a 'money from nothing scam', he thinks when they lend money they create it completely out of nothing, and it is backed by nothing. He routinely quotes economists who completely disagree with him, even in the very paper he is referencing, because he hasn't bothered to read the paper - instead only reading the out of context quotes on a biased website. This is very embarrassing. First rule of making an appeal to authority, check they actually agree with you, or if you're lazy at least check they don't completely disagree with you on the very first page! He has misrepresented my views, as far as I'm aware (feel free to correct me) I've never misrepresented him.

Re: The Clearest Explanation of the Cause of Financial Crisi : Fri Nov 16, 2012 12:17 am  

Mugwump wrote: This is ridiculous. I and just about anyone around the age of 40 can recall a time when excluding mortgages and other services from inflation statistics was - at the very least - uncommon. It was during the eighties that this method gained serious traction within the media. Even though I think it's utterly ridiculous to use this exclusive calculation I could at least handle the media quoting old and new side by side. But now they regularly refer only to the new method and without any qualification whatsoever. So yes - the way inflation is calculated has changed. If you want to deny this and claim we have always excluded mortgages etc. from the sums I really can't help. Mortgages are included in the Retail Prices Index but excluded from the Consumer Prices Index. For long run inflation comparisons its best to use RPI as the CPI only started being used in 1996. The media most commonly reports the CPI as the 'headline figure' but the ONS announces both in the same release. Previously benefits, pensions etc were uprated in accordance to RPI until 2010 when George Osborne linked them to CPI instead (as its lower because it excludes mortgage payments). Also the Bank of England's target is based on CPI not RPI. In any case these days mortgage interest payments have been pretty low for a while due to base interest rates being low. The main drivers of inflation in recent times are energy prices and oil prices, and to a lesser extent food prices. In general inflation has been much lower in the past two decades, partly because of tight wage restraint (as you alluded to) and also because the world market has become more globalised and a lot of consumer goods, clothes etc are much cheaper now due to the availability of cheap imports from developing countries. So price rises have been much more stable. I know what you are getting at that the cost of living seems harder for lots of people but I think the story there is less one of inflation being underrated and more one of wage inequality getting stronger. People at the lower end have not seen their wages rise much for a long time whilst wage rises for those above the middle end have been very good for a while. So those that are fairly well off have enjoyed rocketing living standards as they can enjoy more consumption due to consumer goods being cheap. Those at the lower end are more exposed because things like energy, petrol and food take up a greater portion of their spending. The Institute for Fiscal Studies did something on this a year or so back, and calculated the poor were paying a considerably higher rate of inflation than the rich because the stuff that takes up proportionately more of their income, was what was rising in price faster: http://www.guardian.co.uk/business/2011 ... -than-rich

Mugwump wrote: This is ridiculous. I and just about anyone around the age of 40 can recall a time when excluding mortgages and other services from inflation statistics was - at the very least - uncommon. It was during the eighties that this method gained serious traction within the media. Even though I think it's utterly ridiculous to use this exclusive calculation I could at least handle the media quoting old and new side by side. But now they regularly refer only to the new method and without any qualification whatsoever. So yes - the way inflation is calculated has changed. If you want to deny this and claim we have always excluded mortgages etc. from the sums I really can't help. Mortgages are included in the Retail Prices Index but excluded from the Consumer Prices Index. For long run inflation comparisons its best to use RPI as the CPI only started being used in 1996. The media most commonly reports the CPI as the 'headline figure' but the ONS announces both in the same release. Previously benefits, pensions etc were uprated in accordance to RPI until 2010 when George Osborne linked them to CPI instead (as its lower because it excludes mortgage payments). Also the Bank of England's target is based on CPI not RPI. In any case these days mortgage interest payments have been pretty low for a while due to base interest rates being low. The main drivers of inflation in recent times are energy prices and oil prices, and to a lesser extent food prices. In general inflation has been much lower in the past two decades, partly because of tight wage restraint (as you alluded to) and also because the world market has become more globalised and a lot of consumer goods, clothes etc are much cheaper now due to the availability of cheap imports from developing countries. So price rises have been much more stable. I know what you are getting at that the cost of living seems harder for lots of people but I think the story there is less one of inflation being underrated and more one of wage inequality getting stronger. People at the lower end have not seen their wages rise much for a long time whilst wage rises for those above the middle end have been very good for a while. So those that are fairly well off have enjoyed rocketing living standards as they can enjoy more consumption due to consumer goods being cheap. Those at the lower end are more exposed because things like energy, petrol and food take up a greater portion of their spending. The Institute for Fiscal Studies did something on this a year or so back, and calculated the poor were paying a considerably higher rate of inflation than the rich because the stuff that takes up proportionately more of their income, was what was rising in price faster: http://www.guardian.co.uk/business/2011 ... -than-rich

Re: The Clearest Explanation of the Cause of Financial Crisi : Fri Nov 16, 2012 2:41 am  

Cookridge_Rhino wrote:

I'd appreciate it if you could find an example of me misrepresenting him, because I'm fairly sure I've done no such thing.

Seriously, you DON'T develop a Blue Screen Contradiction error writing this:

LG claimed banks create money in a 'money from nothing scam', he thinks when they lend money they create it completely out of nothing, and it is backed by nothing.

and then this?

I understand how banks create money via the fractional reserve system. I understand they saw regulation, designed to curb their money creation, as a hindrance which should be avoided in order to maximise profits. I know they underestimated risk, and I suspect some may have pushed it further than they thought was safe, for selfish reasons. I'm not sure why this is relevant though.

You admit that banks "create" money out of thin air - but this is ok, provided they follow the rules laid down by the regulatory body which say they must be able to cover the full value of the loan if so required. You then admit they gamed those rules completely (and this is BEFORE we even begin to consider the full ramifications of other scandals such as LIBOR), which ultimately resulted in several major global banks being unable to cover the very same loans you argue are covered.

The reason I say you are misrepresenting at least part of LG's point is that even if banks aren't explicitly set up to purposely function as some kind of backyard counterfeit money press - their EFFECT (and let's be honest - this isn't the first time this has happened throughout history) has amounted to such in all but name.

Re: The Clearest Explanation of the Cause of Financial Crisi : Fri Nov 16, 2012 3:11 am  

sally cinnamon wrote:

Mortgages are included in the Retail Prices Index but excluded from the Consumer Prices Index. For long run inflation comparisons its best to use RPI as the CPI only started being used in 1996.

The media most commonly reports the CPI as the 'headline figure' but the ONS announces both in the same release. Previously benefits, pensions etc were uprated in accordance to RPI until 2010 when George Osborne linked them to CPI instead (as its lower because it excludes mortgage payments). Also the Bank of England's target is based on CPI not RPI.

Excellent, so now we BOTH agree that the process of measuring inflation has changed since the 70s.

I should also say that it doesn't take enormous effort to dig up some pretty heated debates (in admittedly indigestible econo-jargon) relating to divergences in the calculation of RPI and CPI - especially across nations.

I know what you are getting at that the cost of living seems harder for lots of people but I think the story there is less one of inflation being underrated and more one of wage inequality getting stronger. People at the lower end have not seen their wages rise much for a long time whilst wage rises for those above the middle end have been very good for a while. So those that are fairly well off have enjoyed rocketing living standards as they can enjoy more consumption due to consumer goods being cheap. Those at the lower end are more exposed because things like energy, petrol and food take up a greater portion of their spending.

I think I've been pretty clear about the issue of wage stagnation (whose genesis can be traced back to Ford and Nixon).